How to Start an FDI in Sri Lanka – The Definitive Guide

If you are an investor looking to engage in an FDI in Sri Lanka, you are probably looking for a comprehensive guide on it. 

After all, Foreign Direct Investments in Sri Lanka can be an exciting yet somewhat complicated venture. 

If you are looking to understand the ins and outs of the trade, you’ve come to the right place!

In this blog, we will cover everything you need to know about Foreign Direct Investments in Sri Lanka. 

We will look at:

1. How FDI’s work in Sri Lanka
2. Process of investing 
3. How to get the necessary approvals
4. The available investment opportunities
5. Why Simplebooks
6. FAQs

Let’s get started on investing in Sri Lanka! 

FDI in Sri Lanka 

One of the key elements in a foreign direct investment is control. 

Investors usually actively engage in managing and influencing the operations in the businesses they invest in. 

You can do just that and possibly more when you directly invest in the pearl of the Indian Ocean as well.

Now, there are a few ways you can engage in Foreign Direct Investments in Sri Lanka.

You can opt-in for:

1. Mergers and acquisitions.
2. Joint ventures with local firms. 
3. Obtaining voting stock in local firms. 
4. Expanding your current business to Sri Lanka. 

Regardless of the route you choose, investing in another country can always be a little tricky. 

You need to conduct a lot of research and understand the way in which businesses operate in that region. 

Specifically in Sri Lanka, you need the assistance of its Board of Investment in order to engage in foreign direct investments. 

Board of Investment of Sri Lanka: Their role in Foreign Direct Investments 

The Board of Investment (BOI) is the sole Government agency that’s responsible for promoting, approving, and assisting FDI’s in Sri Lanka. 

If you’re a foreign investor hoping to invest in Sri Lanka, this is where you need to go.

They can also grant your project a number of concessions and incentives. 

Setting up under the BOI Sri Lanka 

Engaging with the BOI Sri Lanka works just like any routine negotiation. 

You can present your proposal to the Board of Investments and initiate discussions. 

Once you conclude your discussions, you can sign an agreement with them and begin your project. 

This agreement will remain valid for the lifespan of the project, guaranteed by the constitution of the country.

Every investor that wants to legally engage in an FDI in Sri Lanka through the BOI has to follow two main steps:

1. Understand your project type and submit the relevant documents. 

2. Incorporate a local company under the Companies Act.

Let’s take a look at these two steps in a little more detail:

Understanding your project type and submitting the relevant documents

Like any business-related activity, foreign direct investments are overseen by a specific act in the country. 

‘The BOI Act’ is the official legislature that regulates your Foreign Direct Investments in Sri Lanka. 

Your project will be approved under either Section 16 or Section 17 of this Act.

Let’s take a look at each one of them. 

The BOI Act of Sri Lanka: Section 17 

Here’s a summary of what we will be talking about regarding Section 17:

You can apply for an FDI in Sri Lanka under Section 17 if you are:

1. Setting up a new company under the criteria of Section 17 of the BOI Act.

The minimum amount you need to invest will depend on the type of project and industry you choose to engage with. For example: The minimum investment amount for a manufacturing project will be USD 500,000; while the minimum investment amount for developing apartment complexes will be USD 3,000,000.

2. Expanding a company that already exists in Sri Lanka.

Your project will be overlooked and approved by the Board of Investments in Sri Lanka if you apply under Section 17. 

This also means that they will be in charge of:

1. Granting your project certain exemptions.

2. Deciding on the application of specific laws such as:

• Customs Ordinance
• Inland Revenue Act
• Exchange Control Act (this list is also given under the BOI Act).

You need to invest the minimum required amount (according to the industry) per project in order to enjoy any of the incentives under this section. 

If your project is approved under the requirement of Section 17, you will be granted the benefit of enhanced capital allowances. This is mandated under the Inland Revenue Act of Sri Lanka.

But remember, you will only be granted these exemptions and incentives once all the specific requirements are met by the project.

Your eligibility for the incentives will depend on the amounts invested, employment, locations, and exports.

Section 17: Payment and fees 

The initial application fee will cost you USD 275 + VAT.

You can pay this in cash (rupee equivalent) or by a bank draft in favour of the “Board of Investment of Sri Lanka”.

Aside from the initial application fee, you will also be charged based on the type of project you’re starting. 

Let’s take a look at the initial cost for some project types:

In addition to the initial application fees, you will also have to pay annual fees for some projects:

Annual fees

The annual fees for infrastructure-based projects are further divided based on the implementation period and the value of the project. 

For more details, refer to the BOI website.

Who can apply for Section 17 under the BOI Act?

This is pretty straightforward. 

If you’re setting up a new company under section 17, a shareholder or a representative of a shareholder (who has a letter of authority to act on their behalf) can apply. 

If you are a foreign investor that is buying shares of a local company, you yourself have to apply.

You can download the application forms here or through the links provided on the BOI website.

Once you complete the application forms, you have to submit them to the Board of Investment’s Business Center along with the application fees.  

The BOI Act of Sri Lanka: Section 16 

Here’s a summary of what we will be talking about regarding Section 16:

You can apply for an FDI in Sri Lanka under Section 16 if you are:

1. Setting up a new company with 100% foreign shareholding (only if it’s not eligible under Section 17).

Section 16 applies to the sectors that do not come under section 17 of the BOI Act. However, restricted sectors such as printing money and retail trading will still not be allowed under this section. 

2. Transferring or issuing new shares of an existing non-BOI company to foreign investors.

Your project will first and foremost be governed by the regular laws of Sri Lanka if you apply under Section 16.

The project will also be subjected to ordinary Custom Laws, Exchange Control Regulations as well as IRD laws.

In this instance, foreign investment is allowed without fiscal concessions (tax benefits).

The BOI approves projects that:

i. Allow the entry of foreign investment.

ii. Set up a new company with foreign shareholding.

iii. Transfer or issue new shares in an existing non BOI company to foreign investors.

The minimum investment required to obtain approval under this section is USD 250,000. 

This can be done in 2 ways:

 i. A 100% foreign investment.

 ii. Joint venture investment with a local company.

The application can be downloaded from the links provided by the BOI website.

Payments and fees

The initial application fee is USD 200 + VAT 12%.

Payments made from overseas can be done in the form of a bank draft or cheque. If it’s done from Sri Lanka, a bank draft, cheque or cash equivalent of the above-given value can be used to make the payments.

Who can apply for Section 16 under the BOI Act?

If you’re setting up a new company under section 16, a shareholder or a representative of a shareholder (who has a letter of authority to act on their behalf) can apply. 

If you as a foreign investor are buying shares of a local company, you yourself have to apply.

You can download the application forms here or through the links provided on the BOI website.

Once you complete the application forms, you have to submit them to the Director of Investments or the Senior Manager of the BOI. 

How to apply to the BOI Sri Lanka

Regardless of whether you’re applying under Section 16 or Section 17, you need to submit:

1. A draft of the Articles of Association
2. Names of the proposed Shareholders and the number of shares held by each Shareholder. This needs to be signed by the applicant.
3. Names and addresses of the proposed Directors, signed by the applicant
4. Proof of inward remittance with the bank credentials of the proposed investors
5. Project report (based on the nature of the project)
6. Details of the land to be used for the project

Once the application process is completed, the next step would be the registration of the business. 

Let’s take a look at the steps you need to follow to register your business:

How to register a company under the Companies Act

Step 1: Obtain the approval for the business name

Step 2: Submit the required company registration forms

Step 3: Submit Articles of Association

If the company is to come under the BOI, the draft Articles must be submitted to the Executive Director (Legal) of the BOI for approval, before submitting it to the ROC.

Useful reading material: How to draft your company’s Articles of Association

Step 4: Public notice of incorporation

Read our “How to register a company” blog for a step-by step guide to registering a company. 

Investment policy in Sri Lanka

Sri Lanka’s investment policy is centred on sustainable development goals and is focused on the country’s overall development strategy.

The investment policy prioritises investments that contribute to:

1. Economic activities 
2. Areas for mutual reinforcement of public and private investment 
3. Development of decent work opportunities
4. Enhancing sustainability.

Legislation plays a key role in facilitating investments in the country.

Some of the main legislature that oversees FDIs in Sri Lanka are:

1. Board of Investment Law No.4 of 1978 (BOI Act)
2. Finance Act No.12 of 2012
3. Inland Revenue Act No.24 of 2017
4. Strategic Development Projects Act No.14 of 2008
5. Foreign Exchange Act No.12 of 2017
6. Land policy

Do’s and Don’ts of business investment

Dos of business investment 

i.   Always consider the location of the country and the demographic structure

ii. Get a reliable professional in the relevant field who can help guide you through the process

iii. Connect with the government authority in charge of FDI to understand the requirements and concessions that might be available

iv.  Study and understand the culture and business environment of the country

v.  Create effective marketing material that can be distributed to government bodies, investors, and customers

vi. Work and liaise with the local parties

Don’ts of business investment 

i. Begin operations without considering and understanding the market and the country you hope to invest in.

ii. Dismiss the local market. (You should aim to understand consumer needs and how this market works so that you can capture this market base.)

iii. Invest without considering factors such as wages, labour skills, tax rates, infrastructure, transportation, economy and the potential for growth, political stability etc.

It’s also important to consider the local investment options at hand as well. 

There are a few Sri Lanka specific investments that every investor can make. 

Investment opportunities in Sri Lanka 

Sri Lanka is booming with investment opportunities for foreign investors. 

Some of the island’s more lucrative investment sectors include:

1. The maritime sector
2. Information technology
3. Tourism
4. Manufacturing 
5. Food processing 

Let’s take a look at each sector individually. 

1. The maritime sector

The Port of Colombo is known as the busiest port in South Asia.

Sri Lanka has a developed shipping and maritime sector and is strategically placed in the Indian Ocean. It serves as a major trans-shipping destination. 

Additionally the government has expressed interest in growing this sector. 

2. Information technology

ICT talent in Asia and is one of the fastest growing sectors. 

Sri Lanka is one of the best destinations that provide offshore services for information technology-enabled services. In addition, they provide legal, accounting, banking and telecommunications. 

A World Bank study revealed that the labour costs in Sri Lanka ranked the lowest in comparison to other outsourcing destinations.

3. Tourism

This is one of the key areas of development in the country and is the 3^rd largest foreign exchange earner in the economy. 

The focus on increasing tourist travels creates opportunities for companies to provide services related to the establishment of hotels, leisure and entertainment complexes. 

Some of the potential areas of investment include, tourist accommodation and services, leisure and recreation, shopping complexes, lodges, adventure and ecotourism, transportation and skill development.

4. Manufacturing

Export oriented manufacturing businesses is one key area that the Government intends to continue supporting. 

Apparel, printed circuit boards, medical devices, electronics, auto components, tea and rubber are some of the manufacturing businesses that are developing in the country.

5. Food processing

Given the suitability of the climate to grow fruits and vegetables and additionally having a rich marine life creates an opportunity for food manufacturing and processing companies to benefit from.

Begin your Foreign Direct Investments with Simplebooks!

Simplebooks is a registered Company Secretary with the right knowledge about Foreign Direct Investments in Sri Lanka. 

As a foreign investor, an important aspect of investing in the country is scoping out your project while understanding the applicable laws in Sri Lanka. 

It’s vital that you understand and apply this knowledge in your project proposals to the BOI as well. 

Here at Simplebooks, we will guide you through the entire process of investing. 

Our team will:

1. Help you understand your industry of interest
2. Walk you through the applicable laws
3. Liaison with the BOI and help approve your project 
4. Incorporate your Private Limited Company for you 
5. Help open banks accounts and assist in post registration compliance

FAQs